Wealth Exchange: The Business Of Patience

  14 min 12 sec to read

Sanandan Singh
CEO
WEX
“We will make profits in a few years as we have not looked in the short term strategy. Our team has understood this and is committed to the vision of the company.”

The commodities exchange business is quite young in Nepal. However, the Wealth Exchange (WEX), the newest such exchange of the country is making big strides though it started business only about five months ago. Registered in March 2010, WEX began its operations from November 2010 as a spot exchange. It is the first spot exchange in Nepal where the number of futures exchanges is three. Sanandan Singh, the CEO of WEX said that the company entered the market at the right time. “This is our soft launching and the big one is yet to come’’, he added. The company is preparing to formally inaugurate its business amid a special function. Singh believes that something substantial like a good profit is required for an entry with a bang. “We are waiting for doing right thing at the right time,” he said.
 
In the embryonic market that has just three commodities exchanges, WEX entered as the fourth company with a difference. Singh said that the Meta Trader 4 distinguishes the company from the rest. “Meta Trader 4 is a strong marketing tool for us,” Singh remarked. He explained the reasons for choosing the particular software as, “There is competition in the market and competitors have their own client and niche market. We wanted to introduce a product that is world renowned. And the software has helped to attract business for us.”
 
WEX specialises in gold and silver. However, the company has the vision to expand its services further with various commodities. There are around 30 commodities traded across the globe. At WEX, gold and silver is virtually traded online with a margin, however, the company claims it can make physical delivery of gold and silver if the clients demand, subject to government regulation. “We have determined Rs 70,000 as the margin for a kilogram of gold which is a standard lot. For silver, the standard lot is 30 kg.” Recently, due to the demand of the investors, mini lot of 100 grams of gold has been introduced too.
 
About choosing gold and silver for trading, Singh said, “In Nepal, awareness among the investors about commodities trading may further facilitate the investment climate and other products can be included in the long run. However, gold and silver are the most traded items in the world and known by all.”
 
Trading at WEX does not require bags of solid gold with you. Just a few clicks online and the job is done – thanks to the automated system. Clients make deposits online through the exchange’s banking partner Bank of Kathmandu and the amount is later transferred into the trading platform. Buying and selling to profits and losses are all counted and transferred online.
 
There is a unique chain of communication between the company and the clients. The chain includes a clearing member which is in direct contact with WEX and that is followed by brokers and finally the clients. It is actually the brokers who make clients. The organisational communication adopted is vertical. Singh said, “We go down the line while they (clients and members) come up the line. Customers are not only of the brokers but also of the exchange.”
 
WEX takes membership fees from clearing members and that is passed onto the brokers who may pass this on to their customers. Singh said that the software is the most expensive part of operation of an exchange. He reveals that the company has already reached the breakeven point if the cost of software is excluded.
 
Though the company is target oriented, Singh says there are no plans to make millions of rupees within a few months. Stating his company’s growth strategy he says, “We will make profits in a few years as we have not looked in the short term strategy. Our team has understood this and is committed to the vision of the company.” Singh’s principle is ‘Slow and steady wins the race.’ He said that the team is dedicated on strengthening the foundation. He claimed, “After laying the foundation stone, we have already risen above the ground. We are receiving feedback and we welcome criticism because it is a form of recognition too. The suggestion and feedback requested from us by the Securities Board of Nepal (SEBON) is an example of that.”
 
The company has marketed itself saying, ‘A majority of our clients will be in profit, provided they conduct a proper technical and fundamental analysis.’ Singh says the company won’t have any problem even if 100 per cent of its clients benefit. He defies the rule ‘someone has to lose when someone wins.’ Normally when a client makes profit, the exchange would be in loss. He clarifies, “We have managed the risk. Our philosophy is that clients may profit as much as they can. We are competent enough to pay them.” Singh said that the earning of the exchange is nominal. While 70 per cent of the commission of a standard lot is passed on to the brokers, 30 per cent is shared by the clearing member and the exchange. Currently, WEX’s objective is high turnover in low margin. The company has set the target of minimum trading of standard lots for a month.
 
However, Singh presently sees limited encouragement among clients. “But we hope it will get better with time,” he said. According to Singh, though people have the money to invest they are reluctant to come into this sector due to their lack of knowledge about it. For that, the company has tied with Commodities Trading Institute for WEX certified courses for potential as well as existing clients and brokers. The company hopes to gain substantial momentum after some idea about this market is developed among the potential clients. When the number of brokers increases, the company receives software charge and membership fees which are the income of the company.
 
Currently, there are around 100 clients and 16 brokers of WEX. The company has chosen to increase the clients by spreading knowledge about the commodities market and skills to do trading. Until now, the company has given orientation classes free of cost to 100 - 150 potential clients. The company considers this as an act of Corporate Social Responsibility even before starting to make any profits.
 
The company has plans to invest further in Corporate Social Responsibility (CSR) after it makes a strong foothold in the market. For now, the company likes to call its orientation classes and its responsible operation as CSR activities.
 
The company believes in good governance, transparency, decentralisation and system-run mechanism. Singh says, “We don’t believe in one man decision. It has to be a group decision always.” High moral ethics, integrity, discipline etc are must for anyone in the company. Currently, there are 12 staff members in WEX. “Our philosophy is that everyone in the office must have high degree of ethical standards, honesty and competency. ‘Salary is no bar for deserving candidates’ is our philosophy of human resource management and we guarantee a highly motivating career.”
 
WEX does not feel any competition in the real sense. According to Singh, there is competition with three other exchanges but not in service, commission and platform. “We have monopoly as regards Meta Trader 4 and our efficient and professional standards,” he added.
 
Being a new entrant in the market, WEX has some challenges to defeat. Preconceived ideas that everyone will lose in the commodities trading has become the biggest challenge. “Brokers feel comfortable with old clients. They bargain unnaturally,” said Singh, “Limited knowledge and long term strategy are the main challenges we are facing now.”
 
The company believes steady growth is the best option for now considering the situation of the country. It is planning to expand its services beyond the Kathmandu Valley. Singh informed that there are already quite a few clients outside the capital. Therefore, expansion into major hubs like Biratnagar, Birgunj, Pokhara, Nepalgunj, Janakpur, Birtamod and Bhairahawa where the company sees immense potential, is in the pipeline. Similarly, WEX is focusing on increasing the number of brokers to 50 and clients to 1,000 in the near future. “We are quality focused. We look for clients who can spare their surplus money, but we don’t advise over stretching their expenses and over trading in the commodities market,” he explained.
 
The commodities market lacks the presence of regulatory authority and WEX strongly feels its requirement. Though there are directives, an Act is yet to be formulated. SEBON is proposed as the regulator by the Ministry of Finance. Singh said that an external regulator is needed for check and balance so that regular inspections are implemented and corrective measures are enacted by the exchanges as required by the regulator from time to time. Singh feels that the regulator can regulate the exchange companies and also help in developing the expertise of national and international standard. This sector is yet to be explored fully by the investors as opportunities are unlimited.
 
Though registered as a private limited company, WEX is working and looking forward to going public in the near future. It aims at being the premier commodities exchange in the country, managed by a highly professional and dedicated team for contributing towards the growth of this sector by disseminating knowledge and investment opportunities to investors.  
WEX is confident that the commodities market will grow tremendously and become popular in the days to come that open the new vista of investment and speculative trading to people in general.
 
SWOT Analysis
Strengths:
•   First Spot exchange in Nepal specialising in Gold and Silver
•   Huge capability to facilitate the most complex and demanding trading. The WEX Platform offers trading 24 hours a day throughout the trading week which is more than any other exchange in the country
•   The liquidity of trading is largest and most diverse. Ability to execute large purchases and sales orders quickly and efficiently
•   WEX market is fair, transparent and anonymous and its electronic trading platform offers the same opportunity for all participants
•   Good corporate governance with experienced team
•   First commodity exchange to introduce mobile trading
•   Contract does not expire in SPOT exchange unlike in future exchange
 Weaknesses:
•   Specialisation in two commodities. Unable to provide service to investors having interest in other commodities
•   Teething problems as WEX is in its initial stage
•   Unable to expand its potentials in the absence of a government regulator
Opportunities:
•   Huge market potential
•   By-product of commodities market is not practised
Threats:
•   Unstable political situation
•             Inadequate knowledge of commodities market
 
Quick Facts
•   Incorporated at Company Registrar of Nepal on 18 March 2010
•   Came into operation from 11 Nov 2010
•   Number of Trading Members: 17
•   Number of active traders: More than 300
•   Strategic Bank: Bank of Kathmandu
•   Traded Commodities: Gold and Silver
•   Minimum Trading Size: 100 gm Gold and 5 Kg Silver at Rs 7,000 Margin
•   Trading Platform: Meta Trader 4
•   Spread (difference of bid and ask): 20 on Gold and 1 on Silver
•   Coverage outside the valley : 20 per cent
•   Average Monthly Transaction (standard lot): approximately 1,250
•   Average Monthly Transaction by number: 1,860
•   Average Monthly Transaction by individual investor: approx 6
•   Annual trading member target: 30
•   Annual target of active investors: 2,000
•   Annual target coverage outside Kathmandu Valley: 35 per cent of total
Source: WEX
 

No comments yet. Be the first one to comment.